Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, February 21, 2006

Housing Bubble = Foreclosure Exposure

Yes, Virginia, There Is A Housing Bubble!
By Bruce Collins
February 21, 2006

A lot of economists, realtors and CNBC pundits have weighed in on their opinion of the housing bubble.

Here is why I believe there IS a bubble:

1. Creative lending practices - Today, creative lending practices have allowed people to buy homes for No Money Down, Interest Only and Adjustable Rates. The fact that so many people, who SHOULDN’T be purchasing homes, are scooping them up should be a major concern.

In high priced areas such as Northern California, half of all new home purchases are done with adjustable rates. Considering that the Fed doesn't seem ready to stop raising the rates any time soon, this doesn't seem to bode well.

2. America’s savings rate - The average American’s savings has dropped to zero. This is a catastrophe waiting to happen.

3. Homes as investments - 30% of all homes being purchased now are for investment purposes, not living purposes.

Have you noticed that the homebuilder's stocks are falling? It seems that as they are 'peaking' in housing starts, less homes are being purchased. Therefore, the inventory of new homes is steadily rising. This is all part of the nasty spiral.

We haven’t even touched on people who have used their homes as ATMs in the form of home equity loans to buy luxuries. Consumers, like the government, are over-extended in a sea of credit.

We seem to be lulled into a belief that homes never depreciate, which is simply not true. If you look at history, there have been major downturns in the housing market worldwide.
Taking these three factors into account and adding to it a strong possibility of a slowing economy and that spells disaster for the mortgage and banking industry. This might explain why the government passed new bankruptcy laws. No doubt they see it too.
A good book on this subject is by John Rubino, called "How To Profit From The Coming Real Estate Bust". His website is

Good luck.

Desperate Times Call for Desperate Measures
The Daily Reckoning

"Stocks are holding at their 1997 levels. Houses are at least twice as high. But house prices seem on the verge of tumbling. In the 1990s, houses in the Los Angeles area fell nearly 30% when the aerospace industry went into a slump. People lost jobs; house prices fell. The downturn was cushioned by falling interest rates - especially after the bubble collapsed.

We have full employment - albeit at low wages - but interest rates are not falling, they're rising. Consumers are spending twice as much on housing.

One out of every five homeowners in California spends more than half his income on housing.

The typical mortgage in the Bay Area is - more than twice the typical rent of $1,324.

What will happen when the cycle turns and the ATM machine stops working in the bedroom? Will they drop their houses like dotcoms? Will the marginal buyers go back to renting? Speculators could get hit hard; house prices might drop 30% or more...and stay down.
Watch out, dear reader. Watch out - and prepare."

In Other News...

Inman News has the January foreclosure numbers. "About 103,540 properties nationwide entered some stage of foreclosure in January, a 27 percent increase from the previous month and a 45 percent increase from January 2005, according to RealtyTrac. 'This is the first time since we introduced the report in January of 2005 that we've seen back-to-back months with increases of more than 20 percent,' said James J. Saccacio."

"'While some of this might have to do with the seasonality of normal real estate cycles, it appears that rising interest rates and softening home prices are beginning to push foreclosure inventories closer to the historic average of 1 percent of all U.S. households,' he said."

"California registered a foreclosure rate below the national average despite documenting the third-most new foreclosures of any state. The state reported 9,354 properties entering some stage of foreclosure, a 22 percent increase from the previous month and a 62 percent year-over-year increase."

Inman News. "Defaults on ARMs could result in $110 billion in losses nationwide over the next five years, an enormous-sounding number that still comprises less than 1 percent of the home loans sold since 2004, according to Christopher Cagan."

"'It's unpleasant, but it will not break the economy or the real estate market,' said Cagan, who studied valuations and mortgage debt for more than 26 million residences in a valuation database across 558 counties in 36 states and the District of Columbia, representing more than 60 percent of the nation's population. This is because loan losses will be spread out over the next four to six years, as not all distressed borrowers will find themselves in trouble at the same time, Cagan, an analyst with First American, said.""Cagan agrees that loan delinquencies will go up. 'There will be four times more foreclosures than now. That we know,' the analyst said. But, because the delinquencies will be a 'time release' over the next four to five years, the economy will be able to weather the problems, Cagan said."

"Cagan noted that the market is already starting to impose limits in this area, with some Wall Street investors tightening up standards and refusing to pay as much for bundles of loans that are risky. 'Throughout human history there has always been a war going on somewhere. It doesn't affect most people. But if, say, you're an individual who bought with one of those teaser loans, or a broker who specializes in those loans, or an investor who bought them, you're in the war zone,' Cagan said.""'You don't want to be the person who gets hit with it, but it's not going to break the country,' Cagan said."

From Sonoma Data

1. Carriger Rd
2. Gillman Dr
3. Cooper St
4. Ross Ct
5. Sonoma Hwy
6. Hwy 12
7. Lucas Ave
8. W Napa St
9. 2nd St E
10. Andrieux St
11. Baines Ave
12. Agua Caliente R E
13. Andrieux St
14. San Carlos Dr
15. 1st St W
16. Walnut Ave
17. Encinas Ln
18. Barrett Ave
19. Kelly Glen Ln
20. Encinas Ln
21. Gillman Dr
22. Johnson Ave
23. Cherry Ave
24. Madrone Rd
25. E Macarthur St
26. Boyes Blvd
27. 8th St E
28. Carriger Rd
29. France St
30. Claudia Dr
31. Baines Ave
32. La Quinta Ln
33. Donald St
34. Sperring Rd
35. Malet St
36. Cherry Ave
37. Cedar Ave
38. Guadalupe Dr
39. 4th Ave
40. Millerick Rd
41. Fowler Creek Rd
42. Barrett Ave
43. 2nd St
44. Bokman Pl
45. Apple Valley Rd
46. Lovall Valley Rd
47. Orchard Ave
48. Fowler Creek Rd


At 2/22/2006 12:13:00 PM , Blogger moonvalley said...

Great list Athena! Too bad it's not possible to click on the links without registering but what it really shows is that the bubble and the ensuing fallout is on all sides of town. Nobody who jumped into this with both feet is immune.

At 2/22/2006 12:13:00 PM , Blogger Athena said...

I know... I would love to figure out a way around having to purchase a membership to but perhaps it may be worthwhile.

At any rate, I bet we could take a little field trip around the valley and see which houses might be the likely suspects from this list. Many of them do seem to correspond to where I have seen for sale signs... probably not a bad hypothesis.

perhaps a little zip realty research would net out the last purchase date and price to give a little insight into who is in trouble and why....

At 2/22/2006 12:20:00 PM , Blogger moonvalley said...

This comment has been removed by a blog administrator.

At 2/22/2006 12:23:00 PM , Blogger moonvalley said...

Just trying to post a photo..I have a server to host photos but am having trouble putting this picture up.

At 2/22/2006 12:31:00 PM , Blogger Athena said...

you can email it to me... and I can post it on a thread.

At 2/22/2006 02:50:00 PM , Blogger moonvalley said...

Maybe the picture I sent you applies to a SCPOS...?

At 2/26/2006 07:39:00 PM , Anonymous Anonymous said...

Hey thanks for mentioning my column here.

I used to be the book reviewer for Monster Radio, which is nationally syndicated in over 50 radio markets.

Anyway, I also have an internet radio show and interviewed John Rubino, the author of that housing bubble book.

The archive is on my website,

Take care, Athena!



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